| Distressed taxpayers seeking federal relief can | | | | potential to collect the full amount of the tax |
| expect a higher acceptance rate for Offer in | | | | owed, the IRS may consider an OIC under |
| Compromise submissions due to state of the | | | | exceptional circumstances in which a taxpayer |
| economy | | | | demonstrates that the collection of the tax would |
| Faced with overwhelming tax debt, more | | | | create an economic hardship or would be unfair |
| Americans than ever will be hoping to qualify for | | | | and inequitable. This includes situations where |
| the IRS Offer in Compromise (OIC) program and | | | | compelling public policy or equity considerations |
| save thousands of dollars in taxes, penalties and | | | | provide sufficient basis for compromise. |
| interest. In 2007, approximately 46,000 offers | | | | In submitting an offer based on Effective Tax |
| were submitted to the IRS nationally and only | | | | Administration, the taxpayer needs to provide |
| 12,000 were accepted. Tax experts anticipate | | | | extensive narrative of the special and |
| that there will be more offers submitted this | | | | extraordinary circumstances along with the rest |
| year, as well as a higher IRS acceptance rate due | | | | of the offer in compromise documentation. Right |
| to the state of the economy. | | | | now, extraordinary circumstances would mean |
| While the OIC program can offer relief to | | | | some sort of life and death situation, such as a |
| Americans who have exhausted all financial | | | | serious medical condition. |
| resources available to them to pay their taxes, it | | | | The taxpayer bears the burden of proof to show |
| also allows the government to collect a negotiated | | | | their Offer In Compromise qualifies for public |
| payment from distressed taxpayers now, which | | | | policy or equity considerations. They must show |
| helps the IRS save on the administrative costs of | | | | that their circumstances are compelling enough to |
| going after people who simply don't have the | | | | justify acceptance of their Offer In Compromise |
| money to pay their tax debt. | | | | compared to other taxpayers in similar |
| Although the IRS has announced that it will be | | | | circumstances. |
| taking steps to ease the tax burden on | | | | 5) When does a Collection Information Statement |
| Americans hit by the recession, one of the real | | | | need to be completed? The Collection Information |
| drivers for a spike in compromise offers will be | | | | Statement (CIS) is commonly used by the IRS to |
| the bursting of the real estate bubble, not the IRS | | | | gather the necessary information to determine |
| promise of flexibility. For example, homeowners | | | | the taxpayer’s ability to pay. The CIS is the |
| are typically declined for OIC settlements. But | | | | taxpayer’s financial statement and disclosure |
| there are a lot more people now with net zero | | | | of personal information including assets, income |
| equity. And without home equity to fall back on, | | | | and expenses. |
| many distressed homeowners may now be able | | | | The forms used are Form 433-A for an individuals |
| to negotiate a reduction of their tax debt. | | | | and Form 433-B for businesses. Failure to submit |
| However, taxpayers need to remember that that | | | | these documents will cause considerable delay in |
| the OIC program is a privilege, not a right, like | | | | the process.In addition to these forms, IRS |
| bankruptcy. And taxpayers should beware of tax | | | | personnel may use an abbreviated one page |
| resolution companies that guarantee specific | | | | Form 433F for individual taxpayers who owe less |
| results. | | | | than $100,000. The IRS has established standards |
| Companies need to be upfront and let clients | | | | for allowable and necessary monthly living |
| know that not everyone can qualify for this type | | | | expenses. |
| of help because the IRS has very strict guidelines | | | | Collection Information Statement(s) are required |
| governing eligibility. When the economy was | | | | for Doubt as to Collectability and Effective Tax |
| strong, the IRS tightened the rules on the OIC | | | | Administration Offer In Compromises, and Doubt |
| program, but now things have changed and there | | | | as to Liability offers involving Trust Fund |
| are lots of people that deserve to take | | | | Recovery Penalty assessments. |
| advantage of the program. | | | | 6) If I qualify for an Installment Agreement, can I |
| Here are 10 things that every taxpayer should | | | | still submit an Offer In Compromise? If a tax |
| know before filing an Offer in Compromise. | | | | liability can be paid in a lump sum or through an |
| 1) What is an Offer in Compromise? The IRS | | | | installment agreement, taxpayers will not be |
| Offer in Compromise program was established by | | | | considered for an Offer In Compromise. If an |
| the U.S. Congress to help taxpayers who have | | | | Offer In Compromise is received, it will be |
| experienced significant financial problems get a | | | | rejected with appeal rights. The only exception is |
| fresh start, if they qualify. The IRS has the | | | | if a taxpayer requests an Offer In Compromise |
| authority to settle, or compromise, federal tax | | | | under the Effective Tax Administration provision. |
| liabilities by accepting less than full payment under | | | | 7) The IRS recently levied my bank account. Will |
| certain circumstances. Back tax liabilities, penalties | | | | the levy proceeds be returned if I file an Offer In |
| and interest can be settled. All federal tax liens | | | | Compromise? The IRS will keep all payments and |
| can be released once the IRS accepts the OIC | | | | credits made, received or applied to the total |
| and the negotiated settlement amount is paid. | | | | original tax liability before the Offer In |
| If you qualify for the Offer in Compromise | | | | Compromise was submitted. The IRS may also |
| program, you can save thousands of dollars in | | | | keep any proceeds from a levy that was served |
| taxes, penalties and interest. Taxpayers can | | | | prior to the submission of an Offer In |
| negotiate settlements on all types of taxes, | | | | Compromise, but which were not received at the |
| including most payroll taxes, penalties, and interest. | | | | time the Offer In Compromise was submitted. |
| It is the closest thing to “amnesty” that | | | | 8) Can I file an Offer In Compromise to delay |
| the federal government offers in connection with | | | | collection action? Once it is determined an Offer In |
| back tax debt. | | | | Compromise was filed solely to hinder and/or |
| 2) What do I have to do to be eligible for an | | | | delay collection actions, the IRS will return the |
| Offer In Compromise? To be eligible for an Offer | | | | Offer In Compromise without any further |
| In Compromise, all returns that are due must first | | | | consideration. Taxpayers will not be afforded the |
| be filed. And to qualify for an Offer in | | | | right to appeal this decision. |
| Compromise, taxpayers must prove to the IRS | | | | 9) Are partial payments required with Submission |
| that they have exhausted all financial resources | | | | of an Offer In Compromise? Effective, July 17, |
| available to them to pay their taxes. The OIC | | | | 2006, the IRS has mandated a requirement that |
| process is a very complicated drawn out process | | | | any lump-sum (90 day terms) offer must be |
| that can take upwards of nine months to a year | | | | accompanied by the payment of a non-refundable |
| – or possibly longer. There are guidelines, rules | | | | 20% deposit of the offer amount. For this |
| and protocols established by operation of law, | | | | purpose, a lump-sum offer in compromise is any |
| under IRC Section 7122. However, most Offer | | | | offer of payment made in five or fewer |
| Examiners (former Revenue Officers) use the | | | | installments. |
| Internal Revenue Manual (IRM) as their guide. | | | | Any periodic payment offer in compromise (24 |
| If the layman attempts to go through this | | | | month short term deferred) must be |
| process without specialized representation from a | | | | accomplished by the payment of the amount of |
| reputable tax resolution company, their Offer in | | | | the first installment. The IRS will treat any failure |
| Compromise will not only get rejected but they | | | | to make an installment due under a periodic |
| will end up owing the IRS more money (in | | | | payment offer in compromise while the offer is |
| additional accruing penalties and interest) than | | | | being evaluated by IRS as a withdrawal offer. |
| when they started the process. | | | | Both the 20% deposit on lump-sum offers and |
| 3) Can IRS tax debt be settled by offering a | | | | payments on the periodic installment offers are in |
| fraction of what is owed? The Offer in | | | | addition to the $150.00 user application fee. |
| Compromise program provides taxpayers who | | | | 10) What happens to my Offer In Compromise |
| owe the IRS more than they could ever afford | | | | application fee if my offer is accepted or declined? |
| to pay, the opportunity to pay a small amount as | | | | The application fee for submitting an Offer In |
| a full and final payment. The offer amount that | | | | Compromise is $150. The $150 (and the 20% |
| you submit must be equal to or greater than the | | | | deposit or the periodic payment) is retained until |
| total value of all assets, plus future income. The | | | | the IRS determines whether the Offer In |
| total is generally the reasonable collection potential | | | | Compromise can be accepted for processing. The |
| amount, and not simply an offer of ten cents on | | | | fee(s) and the 20% deposit will be applied against |
| the dollar, or a percentage of the debt. | | | | the amount of the offer and not be refunded to |
| The Offer In Comprise program is not designated | | | | the taxpayer. |
| to be a program for everyone with financial | | | | Federal agencies are authorized to establish |
| problems, and it should not be viewed as an | | | | charges for services provided by the agency, |
| invitation to avoid paying taxes. The minimum | | | | called "user fees". The U.S. Office of Management |
| offer amount must generally be equal to (or | | | | and Budget encourages agencies to implement |
| greater than) the taxpayer's reasonable collection | | | | these fees to recover the cost of providing |
| potential (RCP). The RCP is defined as the total of | | | | special services to some recipients that others do |
| the taxpayer's realizable value in real and personal | | | | not use. |
| assets, plus his/her future income. Unless the | | | | The IRS has established a user fee that will |
| taxpayer files an Offer In Compromise claiming | | | | recover part of the cost of processing and |
| special circumstances, the offered amount must | | | | reviewing Offer In Compromise requests. The |
| equal or exceed the reasonable collection potential. | | | | IRS has chosen to call it an "application fee" |
| Realizable value is the asset's quick sale value | | | | because the fee is required when an Offer In |
| (amount which could be reasonably expected | | | | Compromise application is submitted for |
| through the sale of the asset) minus what the | | | | consideration. |
| taxpayer owes to a secured creditor. | | | | If your Offer In Compromise is not accepted, the |
| 4) How do I know if I am eligible for an Offer in | | | | application fee, the 20% lump sum deposit and |
| Compromise? The IRS may legally compromise | | | | the periodic payment amount will be retained by |
| your tax debt for one of the following reasons: | | | | the IRS. This includes situations where: |
| - Doubt as to Liability (DATL) - Doubt exists that | | | | - The taxpayer’s initial Offer In Compromise |
| the assessed tax is correct. The Offer in | | | | amount is too low - based on the IRS evaluation |
| Compromise program also allows taxpayers that | | | | of the taxpayer's financial condition - and the |
| do not agree that they owe the tax or feel that | | | | taxpayer is given the opportunity to increase it. |
| the tax has been incorrectly calculated, an | | | | - The taxpayer does not increase the Offer In |
| opportunity to file a DATL Offer in Compromise | | | | Compromise amount, or show special |
| and have their tax liabilities reconsidered. | | | | circumstances, and the IRS rejects the Offer In |
| - Doubt as to Collectability (DATC) – Doubt | | | | Compromise. |
| exists that the taxpayer could ever pay the full | | | | - The taxpayer fails to submit additional financial |
| amount of tax owed. A DATC Offer in | | | | documents to assist in the IRS review. |
| Compromise is negotiated on the basis of a | | | | - The taxpayer fails to respond, and/or submit |
| taxpayer’s inability to pay and takes into | | | | the requested information, and the Offer In |
| account the taxpayer's current financial position | | | | Compromise is returned without further |
| including the taxpayer’s equity in assets. | | | | consideration. |
| - Effective Tax Administration – If there is no | | | | - The taxpayer chooses to withdraw the Offer in |
| doubt that the tax is correct and there is | | | | Compromise. |